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It’s Still a Good Time to Become Financially Fit

The Wisconsin Bankers Association offers for your use the following consumer education column. Your bank is free to use this as a community column in your local newspaper, a letter to the editor, a press release or in any other way you see fit. The purpose is to give our members an easy-to-use tool for promoting the banking industry to Wisconsin’s communities.

New Year, New Me, right? We’re a few weeks into the new year and you may have dropped your New Year’s Resolution to become financially fit. Don’t despair. It’s still early in the new year and a great time to clean up your financials, adopt better spending habits, and start saving more. Here are a few tips to keep in mind:

Make a budget and stick with it
This almost cliché financial advice is repeated so often for one important reason: it works. Start by tracking your spending, once you’ve tracked how much money you spend over the course of a few weeks, you can look for trends in what you’re spending. These trends help you start planning on how much income goes towards necessities (like rent/mortgage, utilities, groceries), and see areas where you can cut back (rarely-used subscription services, eating out less) and start putting away a portion of your income towards a savings goal. The most important part of a budget is sticking with it, once you start tracking your spending you should make sure to take time every day or every few days to log your spending and compare that to your planned spending.

Deal with any debt
Debt is an extremely stressful thing to deal with but the new year is a time to get a handle on any debt that may have piled up around the holidays. Debt should be something factored into your budget like your electric bill and tracked. Although it may be daunting, contact your creditors to discuss your situation, they may be willing to work with you to put together a repayment plan. If you're carrying debt on multiple credit cards, talk to your local bank about the possibility of consolidating that debt into a single payment so you can close the extra card accounts. No matter what you do, addressing debt instead of ignoring it will help you get a handle on it and make positive progress.

Shop around
Many times people will stick with whatever they find first, be it their internet provider, car insurance, or brand of soup, but that may not be the best deal, especially a few years down the line. There’s nothing wrong with being loyal to a company but just because they’ve been your cable provider for a few years isn’t necessarily a good reason to stay with them and doesn’t ensure that you are getting the best value for what you are paying. Look around to see what other companies are charging for similar services, you may find that your current company is priced competitively or you may find that you can get a better deal elsewhere. One thing to beware of is a cheaper product or service that is cheaper for a reason, make sure you are still getting a similar quality or ask yourself if you are ok with a downgrade.
Making a commitment to financial health and wellness can be a great way to start the New Year on good footing that can last throughout the year and your life.   

An archive of Consumer Columns is available online at www.wisbank.com/ConsumerColumns. 

By, Eric Skrum

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Staying on Track: 5 Key Factors to Consider When Calibrating Your Capital Plan

Tactical allocation of capital is an integral component of success for every financial institution, so capital planning and strategic planning should be closely tied. Just as bank management and the board must regularly review their institution's strategic plan and make adjustments, an effective capital plan should be reviewed and recalibrated at least annually. That assessment has never been more critical, as the financial services industry approaches what could be a tumultuous period. "The full rollout of the capital conservation buffer under Basel III, CECL, and a potentially completely different economic cycle will be hitting at about the same time, so banks need to be considering and planning for that now," said Nick Hahn, director of risk advisory services at RSM US LLP. "It's a bit of a perfect storm." To adequately prepare, bank management and directors should consider the following five key factors as they look back at 2017 and forward to 2018 during the capital planning process: 

1: Strategy
The bank's strategic plan is the most significant influence on the capital plan, since different strategic goals require different capital strategies. According to Jon Bruss, managing principal and CEO of Fortress Partners Capital Management, there are several situations common to our industry that drive the need for capital: growth in assets exceeding the ability of the bank to retain earnings to support the growth, asset quality problems wiping out a large block of capital, or preparation for an acquisition as a buyer are among them. "There is no one solution that works for all banks in all situations," he said. Banks dealing with rapid growth in assets driven primarily by loan growth can fund a capital shortfall with common equity or with debt issued by a bank's holding company. "Any bank that's in the market for an acquisition and doesn't have a quote symbol for its stock is going to need to make that purchase for cash," Bruss explained. There are several options bank leadership should consider for sourcing those funds. "Cash at the holding company level can be sourced with debt raised via an investment banking firm, lent by a correspondent bank or by an offering in the communities served by the bank, each approach carrying a different cost," Bruss advised. Common equity can be used to raise cash to fund that purchase, "by selling shares to members of the community or via an investment banker-assisted community offering," he continued. "That requires thoughtful planning today, because tomorrow you may be an acquirer." 

2: Unexpected Occurrences
In addition to a yearly review, sudden, unplanned-for incidences should trigger a reassessment of the bank's capital plan. "If there's an unexpected loan charge-off that impacts your capital, for example, review your plan again then," said Lee Christensen, partner, financial institutions practice at Wipfli. "That way you know if you're on track or if you need to change the way you operate in order to get back on track." A cybersecurity breach or unanticipated findings during ALM routines and/or liquidity forecasting should also trigger a review. 

3: Competition
Today's financial services industry is highly competitive, and banks need to win against more than just their peers—credit unions, farm credit lenders, and even financial technology companies are all vying for the same customers. That can lead to dangerous choices. "You can sacrifice on term, price, or structure, and for many institutions pricing has reached the bottom, so now they're making decisions to sacrifice on term or credit risk monitoring controls, which ultimately increases credit risk," Hahn explained. "Financial institutions need to be very aware of the role competition in the market has played and how that could impact credit losses going forward and, ultimately, capital." To address this risk, Hahn recommends bank leadership maintain a thorough understanding of how potential losses could impact the balance sheet. "If we see any upticks in losses, you need to understand what's driving it and know if you need to extrapolate or do broader analysis of the portfolio in general to see if it will spread," he advised. 

4: Legislation and Regulation
Looking forward to 2018 and beyond, there are several legislative and/or regulatory factors to consider when doing capital planning. First is tax reform, which Christensen says will be a big event for banks if it comes to fruition because many banks currently hold a large amount of tax-deferred assets on their books. If Congress follows through on the plan to drop the tax rate from 34 percent to 20 percent, those assets will need to be revalued. "That will be a good thing in the long run, but it may have a negative impact in year one because the offset goes into expense, which ultimately flows into capital," Christensen explained.

Another factor to consider is Basel III's phase-in. In mid-October, the Basel Committee on Banking Supervision announced a plan to break the year-long deadlock that has delayed the capital standards' implementation: setting capital floors at 72.5 percent. The measure has yet to be approved by the central bank governors and supervisors on the Basel Committee's oversight body. 

Finally, the regulatory factor looming largest over the industry: CECL. "In the year of adoption, banks will be allowed to look at their allowance as it's calculated under the old and new methods and the difference will be a one-time charge to equity," said Christensen. "We'd recommend banks preserve capital for that hit, rather than maintaining excessive allowance." However, there is still some uncertainty, as banks seem to be waiting for guidance from regulators on how to build their new models, but the regulators seem to be waiting to offer guidance until they see the models. 

5: Economic Cycle
Banks should review their capital plan more frequently during times of economic turbulence or market instability, and the next period of such agitation is on the horizon. "We're likely closer to the next recession than we are to the last one," Hahn declared. "Many institutions are making the loans that will be their next losses right now." One sector in particular where the coming downturn is apparent is in the highly cyclical agri-business arena; while not yet as severe as some previous dips, ag credits are becoming more stressed. "If and when charge-offs become necessary, the banks need to have the capital available," said Christensen. "We've gone five or six years with very minimal charge-offs. The economy has been on a relatively long upturn during that period, but it doesn't feel like it because we haven't seen the sharp incline that we had in the early 2000s."

Take Action

With these factors in mind, bank management and directors should consider the following action steps (all suggested by one or more of the experts interviewed for this article) to ensure a comprehensive, effective review of their capital plan:

  • Refer back to your original capital plan and your projections. Compare that data with what your current reports tell you.
  • Closely evaluate the 30- and 60-day reports to see if there is potential for those to extend into the 90-day past due report.
  • Adjust your approach to stress testing. Relying on probability of default—looking at what causes borrowers to default—isn't as valuable from a capital planning perspective as using loss-given testing to anticipate the bank's exposure if certain loans go bad. 
  • Understand the capital sources available to your bank in its current state and also in anticipated future states. In other words, verify that your capital plan is realistic. If your institution isn't attractive to capital markets at the time when you need capital the most, know what your alternative source of funding will be. Leveraging your third-party relationships is an important component in maintaining an accurate understanding of today's capital markets.
  • Avoid a siloed approach to reviewing capital. Other risk management exercises and models, including interest rate risk and liquidity, should all impact your capital planning process.
  • Adhere to your loan policies. Amid fierce competition and an economic expansion, it is essential for bank leadership to enforce loyalty to the bank's policies in order to prevent taking on excessive risk.

Capital planning is one of the executive team and board's most important duties, so frequent assessment and adjustment of the plan is not only a good practice from a risk management perspective, but also from a strategic perspective. 

Fortress Partners Capital Management is a WBA Associate Member. 
RSM US LLP is a WBA Gold Associate Member.
Wipfli is a WBA Silver Associate Member. 

By, Amber Seitz

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ILCs: Fad or the Future?

Resurgence of rare charter may reshape the banking industry

The FDIC has two decisions to make that will have a tremendous impact on the financial services industry. On June 6, online personal finance company Social Finance, Inc.* (better known as "SoFi") applied for an industrial loan charter (ILC) for the purposes of offering FDIC-insured NOW deposit accounts and credit card products—this in addition to the student loan refinancing, mortgages, and personal loans the company already offers its customers. The de novo would be chartered in Utah under the name SoFi Bank. On September 7, payments giant Square filed its application** for a Utah-based ILC for the purposes of expanding its lending arm—in addition to payments, Square also offers small business and consumer loans. While (at the time of this writing) the FDIC has yet to take action, approval or denial of these applications will set the stage for the next phase of bank-fintech relations. 

Historical Context 

Now state-chartered companies operating with federal deposit insurance, the ILC business model has been in existence since the early 1900s. Since their inception, non-bank retail companies have used these entities primarily to make consumer finance loans in order to sell their products, explained Attorney James Sheriff, partner at Reinhart Boerner Van Deuren, s.c. For example, BMW, General Motors, and Target all had industrial bank subsidiaries (and some still do). "The charter allows commercial companies to own financial institutions that can take federally insured deposits," explained Attorney Patrick Neuman, partner at Boardman and Clark, LLP. This bucks the long-standing policy in the U.S. to separate commerce and banking, a policy created in 1933 by the Glass-Steagall Act and reinforced by the Bank Holding Company Act of 1956 (BHCA).

Only seven states currently have provisions allowing for ILCs: California, Colorado, Minnesota, Indiana, Hawaii, Nevada, and Utah (where the vast majority of industrial banks are headquartered). Due to their exemption from the BHCA, ILCs are regulated only by their chartering state regulator (the Utah Department of Financial Institutions oversees ILCs with over $143 billion in combined assets) and the FDIC. The Federal Reserve has no authority to regulate the activities of the parent company, which—unlike traditional charters—is not limited to activities that are substantially related to banking.

However attractive this charter may seem, it has not been a popular option in recent years. No ILC applications were filed between 2009 and SoFi's application in June 2017—a timeframe which includes a three-year moratorium imposed by the Dodd-Frank Act (lifted in 2013). The last company to garner attention for its ILC application was Walmart in the mid-2000s. Fearing the retail juggernaut's entry into retail banking, the banking industry successfully lobbied for laws in several states (including Wisconsin) prohibiting ILCs from having a banking facility within 1.5 miles of a retail location owned by the same parent company. At the time, it was considered a great success. However, today's applicants aren't interested in physical retail locations. "Before, the goal was to bring consumers into the store in order to win their banking business," Sheriff explained. "Today, the brick-and-mortar isn't important, but rather wanting to expand financial products and services. It's a different threat."

Comparison of commercial and industrial bank charters

Renewed Appeal

The current financial services landscape is ripe for renewed interest in ILCs. Technological advances have made brick-and-mortar branches unnecessary and nation-wide reach attainable. However, banking's regulatory structure has not kept pace with the change. "Right now, in order to be a financer these companies need to get licensed in all states they do business in," Sheriff explained. One of the biggest attractions of an ILC is the federal pre-emption it offers. "Instead of 50 state regulators examining your consumer finance company, there's one state and the FDIC," he said. 

Another major draw of an ILC is that it allows the parent company to retain the flexibility to experiment that fintech startups are known for. "SoFi is a tech company and doesn't want to be hamstrung by the Bank Holding Company Act," said Neuman. "ILCs are not subject to consolidated supervision at the holding company level. That's a big advantage." 

Operationally, fintech companies like SoFi and Square would receive another important benefit from obtaining an ILC: a stable funding source. "Both companies make loans, and if they get an industrial loan charter they get access to federally insured deposits. Deposits are a significantly less expensive source of funding than investment capital or bonds," Neuman explained. The availability of government-backed deposits as a funding source would alleviate concerns over whether institutional funding is stable enough to weather an economic downturn or significant market fluctuation. 

What Happens If…

FDIC's approval of either pending ILC application would have profound implications for the future of the financial services industry. "If the FDIC decides to approve one of those applications, it could be a game-changer," said Neuman. "If either application is approved, there will be a flood of new applications." If SoFi or Square does receive an ILC, the banking industry will need to prepare for several long-term effects. 

First is a new, aggressive source of competition. "The most often-cited concern with ILCs is that they could lead to a concentration of economic power in banking," said Neuman. With ILC charters, giant technology retail companies like Apple, Amazon, and Google could offer the same products to consumers as banks. "They'd be behemoths to deal with in a consumer or small business banking sector," said Sheriff. In addition, those companies' data collection activities would not be restricted by the BHCA, enabling them to obtain and analyze consumer data that is not available to most banks. "That could seriously undermine a bank's ability to compete," said Neuman. One area where the competition could be especially fierce is in small business lending. "If the ILC option becomes more popular, and if small fintech lenders like Prosper get these charters, it would create a lot more competition for community banks in small business lending," said Sheriff. "It has some real potential detriments for community banks."

Another concern directly relates to SoFi's business model, which is driven by a focus on HENRY customers (High Earner Not Rich Yet). "Much of their business is student loan financing for professionals such as doctors and lawyers. There's concern in the industry that fintech lenders won't adequately serve the working class household or be able to meet CRA requirements," Neuman explained. "This type of business model could lead to a disproportionate allocation of credit." Banks can only speculate how the state regulators and FDIC will address CRA concerns with ILCs. 

Increased popularity of ILCs may also dampen partnerships between banks and fintech companies—partnerships that currently expand product and service offerings for many bank customers. "If FDIC starts approving these charters, there will be fewer partnerships between fintechs and banks," said Sheriff. "The fintech companies will no longer need to partner in order to get data and deposits." This is not conjecture. Former SoFi CEO Michael Cagney told TechCrunch the company plans to offer checking, deposit, and credit card services through a regional banking partner if the ILC application is not approved. 

Finally, ILC opponents see increased risk to the industry as a whole if these charters have a resurgence among technology companies. "What happens if one of these goes through and becomes huge, but then the parent company makes some wild bet and goes under? That could be a huge hit to the FDIC and the banking industry in general," Sheriff said. "Bank regulators aren't familiar with how to evaluate some of those widespread risks. We've separated banking and commerce for 85 years for a reason." The same concern applies to the potential for further increasing the market power of the "Big Five" (Amazon, Apple, Facebook, Google, and Microsoft) by adding banking services to their already diverse lines of business.

What if the FDIC denies the pending applications? Will community banks be able to breathe a sigh of relief and go back to business-as-usual? Probably not. "If these fintech companies don't get approval for an ILC, I believe they'll pursue other avenues, such as an OCC fintech charter," said Neuman. "Banks are going to see fintech as a real competitor in the lending space, and sooner rather than later." Influencer companies in the technology sector have set their sights on banking products, and they won't be easily deterred. "The bottom line is that there is activity in this area right now," said Sheriff. "This isn't hypothetical."

Boardman and Clark, LLP is a WBA Gold Associate Member. 
Reinhart Boerner Van Deuren, s.c. is a WBA Associate Member. 

*View a copy of SoFi's application here. On October 13, SoFi withdrew its application for an ILC charter as it undergoes a leadership transistion, but says "a bank charter remains an attractive option."
**Square's ILC will be named Square Financial Services, Inc., according to a Wall Street Journal report.

By, Amber Seitz

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Legal Q&A: Authority to Act Under a POA Agreement

Q: How can I be Certain an Agent has Authority to Act under a Power of Attorney Agreement?

A: WBA continues to field a variety of questions about when and how an agent may act under a Power of Attorney (POA) agreement. This Q&A is dedicated to that question generally.

A POA agreement is a legal document whereby one party (the principal) designates authority to act on their behalf to another party (the agent). Always ensure that any POA agreement bank receives relates to powers over finances. Take a copy of and review any POA agreement related to finances the bank may receive for its customers. Customers may bring in the model agreement provided by Wisconsin in accordance with Chapter 244 or one drafted by an attorney. Both are equally valid methods, but may contain different terms and provisions. Confirm whether the POA agreement is: durable, non-durable, or springing. This refers to when the agent may act: either while the principal is incapacitated, cease while the principal is incapacitated, or after a predetermined event.

All of the agent’s authority to act comes from what is written within the POA agreement. Ideally, the POA agreement is clear and specific. Sometimes, it may not be. For example, the POA agreement may refer to “general powers of finances.” Wisconsin Statute Section 244.41 indicates which authority is covered by a general grant and those powers that require a specific grant. You will want to review that portion of the statute to assist in determining the agent’s authority. In any case, carefully review the document, and consider obtaining an opinion from the bank’s own counsel.

Special rules exist for agency on joint deposit accounts. All parties to the joint account must designate the agent to have authority on the account for the agency to be valid. However, only one party needs to revoke that authority in order for the revocation to be effective. 

Generally, agents may not appoint other agents, and generally may not conduct estate planning activities on behalf of the principle. Look for specific language granting this authority if an agent wishes to act in this way and consider obtaining an opinion from the bank’s own counsel.

A POA agreement for personal finances of an individual doesn’t automatically mean that an agent can act with respect to any fiduciary authority the ward has. For example, while a trustee may have the authority to appoint an agent over a trust, in order for the trustee to appoint an agent over a trust they should do so in their capacity as a trustee rather than as an individual.

As a final reminder, POA agreements for health care do not apply to deposit accounts. They relate to health care decisions rather than finances.

As always, if you have any questions on POA matters or other compliance-related concerns, call the WBA legal hotline at 608-441-1200 or email us at wbalegal@wisbank.com.

Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution's attorney for special legal advice or assistance.

By, Scott Birrenkott

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Identity Theft Protection for Kids: What Parents Can Do

The Wisconsin Bankers Association offers for your use the following consumer education column. Your bank is free to use this as a community column in your local newspaper, a letter to the editor, a press release or in any other way you see fit. The purpose is to give our members an easy-to-use tool for promoting the banking industry to Wisconsin's communities.

Identity theft is on the top of many consumers' minds these days, with new data breaches announced seemingly weekly. As masses of Americans turn to credit monitoring, fraud alerts, and other solutions to prevent their identities from being stolen, one group sometimes slips through the cracks: children. Parents: don't forget that your child has a social security number, so their identity could be stolen and used to take out fraudulent loans that could damage their ability to buy a car, get student loans, rent an apartment, or even get a job in the future. Below are some steps to consider to help protect your children from ID theft: 

Watch for red flags.
First, keep an eye out for common signs that your child's identity has been used to obtain credit. These include an influx of mailed credit card and/or loan offers addressed to your child, a notice from the IRS that your child didn't pay income tax or was claimed as a dependent, and collections calls for bills addressed to your child. When your child gets older, being denied a bank account, driver's license, or government benefits (such as Medicaid) are also indications that their identity may have been stolen. 

Check your child's credit report.
The next step to take is similar to what you would do to protect your own identity: check their credit report. It's a bit more complex when the credit report you're requesting is your child's (versus your own), but it is an important step. Contact the major credit bureaus (Equifax, Experian, and TransUnion) to find out the specific documentation they require. You'll likely need to mail in copies of your child's birth certificate and/or their Social Security card, as well as a copy of your own ID. Keep in mind that your child may not have a credit report-and that's a good thing! It means your child's identity has not been used by criminals to obtain credit in their name. 

Consider a credit freeze.
If you find that your child has a credit report, consider placing a freeze on it. This is especially important to consider if your child's identity has been stolen, since it will help prevent future instances of their information being used to obtain credit. Wisconsin's Child Credit Protection Act allows parents and legal guardians to place a freeze on their child's credit record. By freezing their credit with each of the major credit bureaus, you will prevent criminals from taking out credit using your child's identity. Each credit bureau has a different process for freezing credit, so contact them to find out the steps if you are interest in a credit freeze for your child(ren). Keep in mind, the bureaus charge a fee to freeze and unfreeze credit, so you'll want to consider how close your child is to legitimate credit requests (such as student loans or a first credit card) before taking this step. 

If you suspect your child's identity has been stolen, visit www.identitytheft.gov for step-by-step guidance on what to do next. 

An archive of Consumer Columns is available online at www.wisbank.com/ConsumerColumns.

By, Amber Seitz

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Nimble CFOs: Bank CFOs Take a Broader Role as Their Industry Evolves

The Shift from Historian to Strategic Partner

Across industries, the function of the Chief Financial Officer is transforming, and the broad, rapid change in the banking industry over the past decade has accelerated that evolution. "The CFO's role a decade ago was more behind-the-scenes," said Ed Sloane, CFO of First Business Bank, Madison, comparing it to today's dynamic, collaborative functions. "The CFO role has evolved over the years, but it's really the result of an evolving industry." The shift in focus from clerical to strategic has not necessarily changed the job descriptions of bank CFOs, but rather the expectations placed on them. "The definition of a CFO hasn't changed much, but the role and expectations have changed," said Nicholas Hahn, director of Financial Institutions Risk Advisory Services at RSM US, LLP.* "Typical CFO duties have transitioned to Controllers to allow CFOs to focus on more strategic initiatives." 

That transition means today's CFOs must keep their eyes on the future as well as the past, with the emphasis on forecasting. "The emphasis of what a CFO is to do has changed, and that's a good thing," said Gary J. Young, president & CEO of Young & Associates, Inc.** He explained that in the past, CFOs were simply very good at telling the CEO and the Board what had happened to the bank (ratios, growth, margins, etc.)—a vast underutilization of the CFO role, which should focus on improving profitability. "The role of the CFO is to lead and direct the organization financially," said Bob Makowski, CFO of Park Bank, Milwaukee. "That's so broad compared to what it used to be. The role used to be looking backward, focused totally on financials." Park Bank president/CEO Dave P. Werner agreed: "The role has changed from being that of a historian to being a forward-looking strategist, looking at the financial impact of the decisions we make operationally."

Prognosticator and Storyteller

No longer confined to number-crunching in a back room, today's bank CFO is a strategic partner to the rest of the management team, acting as both a forward-looking advisor and strategy advocate. As the primary source of financial information for the CEO and board—particularly relating to interest rate risk modeling, capital, and asset/liability management—the CFO is well-positioned to help design and execute the bank's strategic plan. According to Makowski, on a macro level this involves identifying the best balance sheet composition for the bank in terms of liquidity, investments, loans, etc. "Make liquidity and balance sheet composition a top priority," he said. "That's what you can impact every day, also looking at it long-term." Werner described it as being the "balance sheet strategist," that is, answer the question of how to best position the bank to lend to its customers while maximizing profitability, boosting capital, and providing a return to shareholders. Another significant duty of the CFO as the primary financial informer for the CEO and directors is regarding merger activity; regardless of whether the bank is actively seeking a purchase or sale, the board has a fiduciary responsibility to evaluate any opportunities that arise. "The ability of the CFO to understand and communicate critical valuation and accounting issues is very important," Hahn explained. "CFOs must be able to assist directors with that." Despite this emphasis on forecasting and planning, Young cautioned against forgetting to look at the bank's historical financial data as a source of information. "The CFO still needs to be looking back, but the emphasis should be on looking forward," he explained. One example of this is conducting a risk/reward study for every new endeavor the institution considers, Young said, pointing out that regulators now require banks to do such an analysis for significant technological or product offering changes.

CFOs: Expand Your Expertise at the WBA CFO Conference
"There are lots of different hats that CFOs are wearing today that they haven't traditionally worn. Their sphere of influence continues to grow." – Nicholas Hahn, director of Financial Institutions Risk Advisory Services at RSM US, LLP. 

Hahn will be speaking at WBA's upcoming CFO Conference, along with several other expert speakers. Join them and your fellow bank CFOs on November 16 in Madison for a full day of professional development and valuable networking opportunities. Visit www.wisbank.com/CFO for more information and to register.

The other facet of the CFO's role as strategic partner is to be an advocate for the bank's strategy, both internally (to staff) and externally (to shareholders and customers). "A CFO is more of a storyteller now," said Sloane. "We're constantly communicating and furthering the strategy of the organization and making sure employees at all levels understand what that is." This requires CFOs to be dynamic communicators—much like salespeople, which is a vastly different mindset from the past. "When you come into the bank each day, be thinking of what is happening today that will get you where you want to be in a year or two," Young advised. The strategic plan must be the ultimate guide for all day-to-day activities. "Every decision that you make as a CFO needs to support the long-term vision of the company," said Sloane. "You need to truly believe in it and push it out, both externally and internally."

How to Pivot

For bank CFOs still wearing the 'head accountant' hat, there are four key actions to consider that will help you effectively transition into a strategic partner. Fair warning: as the CFOs' role and responsibilities have expanded, most of these steps require CFOs to venture outside of their comfort zones.

1: Minimize the Minutia

"Like with any c-suite position, when a CFO gets caught up in the minutia they're not leading, not managing the bank; they're managing details," said Young. "If you're caught up in the details every day, the CFO becomes a bookkeeper." Not only does this detract from the CFO role, it's also highly inefficient: no company should pay an individual $120,000 per year to spend six or seven hours every day doing $50,000 per year work. Makowski pointed out that sometimes minutia comes disguised as operational requests from other departments, since the CFO and their team are generally viewed as financial problem-solvers. However, CFOs must be careful not to take on work that could be performed in other areas. "You want to be helpful and a team player, but that's not where you maximize value for the organization," he said.

2: Assemble a Top Team

Knowing when to delegate is closely related to avoiding minutia, and it first requires having a capable team to delegate to. "One of the top priorities for a CFO should be to assemble a team with the right mix of expertise to address the wide variety of areas necessary for the institution's success," said Hahn. The breadth and depth of a CFO's oversight has expanded dramatically; CFOs must be able to rely on their team. "CFOs need to be increasingly involved in attracting, growing, and retaining talent," said Hahn. Sloane pointed out that having the right staff can help the CFO avoid distractions. For example, he explained that First Business Bank has a designated Chief Accounting Officer—which is unique in banks of their size—and that allows Sloane to focus on the bigger picture. "Having a top-notch staff is critical to allowing the CFO to be a strategic partner," he said. 

3: Utilize Technology

Long gone are the days of handwritten ledgers, but some institutions still cling to their trusted Excel spreadsheets; upgrading that technology can streamline strategic initiatives. "Having a robust profitability system that can break down the company in a number of meaningful ways is incredibly important for a CFO," said Sloane. "That technology is essential. Having robust systems and infrastructures in place to allow you to dive into the details is really critical." Two of the most significant ways a CFO can impact their institution's profitability is being proactive about liquidity management and effectively modeling interest rate risk, according to Young, and technology facilitates those tasks. "To a CFO, the technology changes that have taken place only make the job easier," said Young. "There's so much information at your fingertips now. The key is to look forward."

4: Build Relationships

Finally, today's CFO must escape the back room and interact with a wide variety of stakeholders: other bank staff, shareholders, regulators, vendors, and peers. "CFOs need to be relationship-builders," said Hahn. "Effectively identify the people you need to bring together and then manage them." He cited CECL as a good example of something that requires the CFO to assemble an internal team; it impacts accounting, risk management, lending, and even IT. Outside of the bank, CFOs have become much more engaged with shareholders. "The CFO plays a huge role in investor relations," Werner explained. "Investors need to have confidence in your CFO." Regulators should share that confidence, too; fostering relationships with regulators is an important piece of the CFO's compliance responsibilities. "You need to develop those relationships and fully understand what the hot topics are so you can be responsive to regulators," said Sloane. When it comes to highly technical areas outside of the CFO's areas of expertise, Hahn recommends developing relationships with vendors who are experts in that area (whether their assistance is contracted or on an ad hoc basis). "Don't hesitate to leverage third parties to help in emerging or technical areas," he advised. "There is a wealth of industry information available to help make those decisions." Finally, today's CFOs need to build and sustain a wide network of peers they can lean on for advice. "Get out of the vacuum of your organization," Werner advised, recommending seminars and conferences as ideal places to both network with peers and stay educated. 

Seitz is WBA operations manager and senior writer. 

*RSM US, LLP is a WBA Bronze Associate Member.
**Young & Associates, Inc. is a WBA Associate Member.

By, Amber Seitz

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Where Have All the De Novos Gone?

Barriers to entry, reasons to overcome them, and why it's important for the industry

In 2005, the FDIC reviewed 299 applications to start new banks (237 were approved). From 2009 to 2016, they approved just five. Meanwhile, the U.S. economy in general has recovered from the financial crisis of 2008 and subsequent recession, with employment levels back to their 2005 numbers and housing markets back to booming. So, where have all the de novos gone? "It's a combination of factors," said Attorney James Sheriff, partner at Reinhart Boerner Van Deuren, s.c. "It's not a simple, easy answer." The credit crisis alone did not cause the current dearth in de novos, but its lingering effects have created several barriers to entry that discourage the formation of new banks. "This didn't go from a lot to a few; it went from a whole bunch to nearly none. That's very telling," said Andy Guzikowski, Attorney and Shareholder at von Briesen & Roper, s.c. "It's all related to barriers to entry, both real and perceived."

Barriers to Entry

Compliance | One obvious headwind to starting up a bank is the current regulatory environment, which is far more onerous than it was a decade ago. "Practically speaking, the regulatory environment is much more complex with regard to de novo banks," said Tim Kosiek, CPA, partner at Baker Tilly Virchow Krause, LLP. "There's still overlay from the credit crisis and recession." Unfortunately for de novos—which are almost always small community banks, at least at first—community banks shoulder a disproportionate regulatory load in today's industry, and the costs of that add up quickly. "Community banks in particular need to spend more time and money on compliance than they ever have before," Sheriff explained. There have been recent indications, however, that the federal regulatory agencies are willing to compromise in order to foster new banks. "The regulators are always collaborative, very willing to meet and spend time and provide resources to answer questions," said Pete Wilder, attorney and shareholder at Godfrey & Kahn, S.C. He pointed out that the FDIC has been holding meetings on how to encourage de novo activity and has updated its manuals for applications. 

Capital | Another commonly cited barrier to entry is today's higher capital requirements. "The capital requirements today are significantly greater than they were 20 years ago," said Mark Koehl, partner at Wipfli LLP. "That's certainly a big hurdle." In the de novo heydays of the late 1980s and early 1990s, a group of investors could start a bank for $6M. Today, most estimates hover around $15-$20M. However, that number can vary depending on the new bank's specific circumstances. "There is a lot of misinformation out there related to capital," Wilder explained. "The regulators don't take a one-size-fits-all approach." He says DFI and FDIC both determine capital requirements based on the new bank's intended market, products and services, and growth strategy.

ROI | The general decline in bank profitability since the crisis is another barrier to entry for potential new banks; it means lower returns for investors. "The returns available in the banking business are measurably reduced compared to what they were prior to the credit crisis," said Kosiek. "We're in a measurably different landscape when it comes to economic reward for entering the industry." He also pointed out that the amount of time it takes for a de novo to reach "critical mass" and begin generating returns for its investors is much longer today than it used to be—7-10 years instead of 5-7. The current prolonged low interest rate environment compounds this problem, lengthening the time it takes for a nascent bank to become profitable. "Investors hope a bank will become profitable within two years, and with the interest rate environment we're in it's difficult for investors to see banks making money," Sheriff explained. This less-than-appealing timeline plus the current regulatory environment makes purchasing a bank much more attractive to investors than starting one from scratch. "It's much easier for a group of people who want to start a bank to buy a bank than to form a new one," said Sheriff. "It's faster, and the process of getting approval is far less complicated. You also don't have to go find talent, in many cases."

Talent | The cost of talent is another factor that gives potential de novos pause. "There's still a bit of malaise from the crisis, where the entrepreneurial spirit has been dampened," said Wilder. That lack of leadership combined with the higher prices commanded by experienced compliance and lending professionals makes building a staff difficult. "There's a notably lower supply of high-quality bank talent on the marketplace in comparison to what you had 10-20 years ago," said Kosiek. "There are just fewer people out there who think banking is the right place for their career."

Competition | Finally, the competitive environment in the financial services industry is wider and more complex than it used to be, for a variety of factors. First, small businesses no longer feel underserved when local banks merge with larger institutions, according to Koehl. "Many larger institutions have done a good job serving communities, and fintech companies are also helping to fill in the gaps," he explained. "In addition, millennial business owners don't necessarily want the same level of relationship development." The more relaxed regulatory environment and exciting startup culture makes investing in fintech companies more attractive to most investors than a de novo community bank. "There are other options within the banking industry and within the financial services industry that are more appealing to the investor and a better answer for customers and business owners," said Kosiek.

Impact on the Industry

Wisconsin is fortunate to have a diverse, thriving financial services industry, so the Badger State hasn't been as heavily affected by the national lack of de novo activity as states with fewer banks. However, underserved markets are typically where de novo activity happens, so they are the first to feel the impact when it doesn't. "Most important is the availability of credit to rural areas," Guzikowski explained. "Larger banks can achieve that true community contact, character-based lending if they have the right people, but that's specifically what de novos and community banks are designed to do." In rural states like Wisconsin, merger activity without de novo activity often results in fewer financing options for businesses and consumers outside of metropolitan areas. "If the current trend continues without the ability to encourage de novos in the future, we're at risk of having a good chunk of our state where the local economy suffers because of a lack of community bank presence," said Koehl. 

The lack of new banks also impacts M&A activity. "It deprives the industry of new opportunities for growth," Guzikowski said, explaining that many investors consider growing through acquisition and then selling a bank to be a good exit strategy. The lack of de novos means there are fewer acquisitions to be made, making that strategy more difficult. Instead, many investors see purchasing an existing bank as a better opportunity. "If you're interested in the banking industry from the investor standpoint, dropping your money into a de novo is not as appealing as investing in an existing franchise, enhancing it and getting ready for acquisition by a larger enterprise," said Kosiek. According to Koehl, another major factor is that acquired banks used to have younger management teams who wanted to stay in the industry and did so by starting their own bank. "Today, there's still a lot of M&A, but it's often with banks with older management teams who are looking for an exit strategy," he explained. 

Finally, startups—in any industry—are the most likely source of excitement and innovation. "Traditionally new banks have more innovative ideas," said Sheriff. "They're looking to make a statement." New entrants to the market can prevent other banks from stagnating. "For the industry overall, having a few new banks pop up here and there means there's more room for new ideas, new products, and more creativity and excitement in the industry," said Wilder. 

Looking Forward

While de novos have been rare over the past decade, there are signs the tide is turning. In the final quarter of 2016, the FDIC approved two new bank charters. In April 2016, FDIC Chairman Martin Gruenberg announced the reduction of the period of heightened scrutiny for newly chartered institutions from seven years to three, the same level it was before the financial crisis. Since then, FDIC has published a handbook for prospective de novo applicants and held outreach meetings on the topic. Other federal regulators are taking steps to reduce some of the friction in the de novo process, as well. "The OCC in particular has recognized that new banks are the lifeblood of a robust banking industry," said Guzikowski. Acting Comptroller of the Currency Keith Noreika has gone so far as to suggest the OCC be granted authority to approve de novo applications. Considering these ongoing efforts, Guzikowski suggests the next step is test cases. "With the easing of the interest rate environment, what the regulators need now are more applications so they can start putting some of their initiatives into practice," he explained.

In combination with this (slightly) softening regulatory environment, Wisconsin's robust, steady economy could be fertile ground for new banks. "Our economy tends to be pretty stable compared to the big swings you see on the coasts, so it's a good environment for banking," said Wilder. Since 1990, Wisconsin has had 33 de novos and only three of them failed, while on average the new banks turned a profit within six quarters. The recently announced Foxconn development planned for the southeastern corner of the state also brightens prospects for potential new banks. "If all that comes to fruition, it could be an opportunity," said Koehl. "Community banks, whether they're in existence today or a de novo, they're always driven by how their local economy is doing. So, if you have a vibrant economy in a local market that doesn't have a community bank, that's an opportunity for a de novo."

Baker Tilly Virchow Krause, LLP and Wipfli LLP are WBA Silver Associate Members. 
Godfrey & Kahn, s.c. and von Briesen & Roper, s.c. are WBA Bronze Associate Members.

 

By, Amber Seitz

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Bright lightbulb in the middle of dim ones
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Community Banks Leveraging Technology

Three Wisconsin institutions prove you don't need to be big to benefit from technology

The banking industry is undergoing a period of massive change in many areas (technology, compliance, competition, etc.), but one of the most significant has been in progress for over a decade. Over the past ten to fifteen years, banks have been gradually replacing in-person, customer-facing operations with technology—account opening and loan applications, for example. The concept of using technology to augment human relationships is relatively new to banking, but Wisconsin Banker interviewed three Wisconsin banks who have done so successfully, each in a unique way. 

Customer Convenience – Digital Channels
Waterloo-based Farmers & Merchants State Bank has offered online mortgage applications since May 2008 and added a mobile banking app five years ago, and they've seen results. "In the last five years we've gone from $95 million to $153 million in loans serviced for the secondary market, largely due to the online applications," said Executive Vice President & CFO William Hogan, CPA. After an initial lag in adoption rates, Chief Marketing Officer and Bank Manager Kim Abraham says marketing helped the online applications grow in popularity, but customers are also becoming more accustomed to doing things online. "Their comfort level with technology changed," she explained. Hogan notes that the product also markets itself through referrals, since customers who love the convenience of being able to start their application anytime often recommend it to others. 

Internally, the bank decided to implement the online mortgage application product (which includes HELOCs) as a tactic to build their secondary market servicing portfolio. However, it also enhanced the perception of the bank and their products and services in the community. "We recognized that this was a way for us to not only be seen as a small town community bank with big banks products and competitive rates, but also as viable option and player in the surrounding communities and Madison market," said Abraham. 

The bank's mobile app has also been impactful, partly due to steady increase in users of the mobile deposit feature. "We were one of the early adopters of mobile deposit capture," Hogan said (the bank launched the product in June 2013). "There's been a steady adoption of that." One of the reasons usage of the bank's app continues to grow is the periodic additions of new features, such as mobile bill pay. "We're constantly looking at the mobile app and adding to it," Hogan explained. He knew the bank needed to invest in mobile the day he walked around the office and saw everyone with a smartphone. "It's just the way to go," he said. The bank's goal with each of these tools was to make connecting with customers easier. "Customer convenience is one of the primary drivers behind our technology," said Abraham. 

Speedy Service – Compliance Concierge
Mayville Savings Bank was one of the first institutions to use FIPCO's Compliance Concierge loan origination and deposit account opening software suite when it launched in 2012, but they've been using software for lending for many years. "We are trying to follow technology as fast as it's moving," said Loan Processor LaRue Wills, who also sits on the FIPCO Users Committee. "Our small little community bank wants to be able to offer what larger regionals are offering their customers." Being fast adopters of software has increased speed-of-service for the bank's customers and internal efficiencies, as well as allowing the bank to offer mortgage products it previously could not. 

One of Wills' favorite features of Compliance Concierge is an upgrade the bank purchased: a credit reporting interface with Factual Data. "It makes it so nice to be able to take an application, do a credit report and have all the information fill in automatically," she said. The software also allows bank staff to offer faster service. "The time-saving for customers is excellent," Wills said. "Customers can walk into the bank and get taken care of in an hour." Leveraging the software to its full capacity has also helped the bank operate more efficiently, according to Wills. "If a customer wants to get a loan and switch their deposit account to us, it's much easier now for all of that to go into one system," she explained. "Banks that only have the deposit side or only the loan side don't know what they're missing."

The bank's decision to invest in technology like online banking and Compliance Concierge has also enabled it to offer fixed-rate mortgage loans, a product they previously were not able to offer their customers. "We are a small community bank with only one branch, we're as small as they come," said Wills. "Now we're able to offer our customers fixed-rate loans and that's due to the convenience of having Compliance Concierge be able to upload the required information for selling them on the secondary market directly to the bank we use. Before, we couldn't help a customer who would only do a fixed-rate loan. Now we can serve them."

Full-Service Machines – QwikBank ATMs
Two years ago, Superior Savings Bank decided to consolidate some of its branch locations to improve efficiencies—branch transactions had been steadily declining due to the popularity of the bank's electronic services. "Management and the board felt the need to replace two of the bank's high-cost branch offices with a solution that would provide customers with similar convenience," President Dawn Staples explained. Four months after closing a branch in the Walmart Supercenter on the west side of Superior, the bank installed its first QwikBank ATM just across the parking lot. Shortly after that, a second QwikBank ATM was installed on the east side of Superior. "The main goal was to mirror the services provided when the bank had three staffed locations in Superior," Staples said. "In addition to making cost-free ATM access available to its debit card customers, the bank wished to provide the ability for them to deposit cash and checks at locations in addition to the main office in the downtown."

The QwikBank ATMs have several features, including typical ATM functions like cash withdrawal and checking balances, but one of the most popular is a transaction previously only available in the teller line. "Our favorite feature of these full-service ATMs is the customers' ability to deposit cash and checks into their accounts with immediate availability," said Staples. "This essentially enables the bank's customers to cash a check at the ATM." To promote this new way for customers to interact with the bank, the main office tellers have undertaken a continuous customer education process, which Staples says has been successful. "The reaction of the bank's customers has been very positive," she said. "The key is getting the word out about the QwikBank locations and capabilities." 

Ultimately, the QwikBank ATMs are just one more tool in the bank's technology repertoire. "For a small bank, Superior Savings Bank has capably matched its larger competitors in providing electronic banking solutions," said Staples. "In addition to the full-service ATMs, we offer internet banking, bill pay, mobile banking and remote deposit capture." That comprehensive approach to technology has helped the bank set itself apart in the communities it serves. 

FIPCO is a wholly owned WBA subsidiary.

 

By, Amber Seitz

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Channel Surfing: Banks Adapt to Shifting Customer Preferences with Multiple Delivery Channels

When it comes to delivery channels, the quantity over quality strategy is ineffective, Gallup research shows. In studies and surveys conducted from 2013-2016, Gallup has found that some banks have focused on aggressively expanding the number of channels they offer their customers without first researching how to choose the channels that best fit their customers and their overall strategic goals. Channel satisfaction is the key to increasing engagement and deepening the bank's relationship with its customers, and the key to channel satisfaction is identifying how and where your customers want to interact with you. 

The list of channel options for product delivery and marketing seems endless—but rather than having 500 channels and nothing good on, a strategic channel approach can effectively engage your audience. When the focus shifts from individual channels to the overall customer experience, it can be easier to identify where to focus. In general, channels can be classified as either traditional or digital and used for product delivery or marketing. Wisconsin Banker interviewed four experts to highlight current popular channels for banks to consider. 

Branches
"Branches are not dead, they're just changing from transaction centers to sales centers," said Mark Arnold, president of On the Mark Strategies. The bank branch is still a key channel because customers still want to know their banker and value the experience they have with the bank—regardless of whether that experience is online or in person, according to Sara Baker, vice president, Ladysmith Federal Savings & Loan. "Customers still demand that high-touch personal service from their community bank," said Baker. "Balancing the digital versus human touch relationships with our customers is key to the future of community banking."

Interactive Teller Machines
"Interactive teller—or video teller—machines are something every bank should study," said Jay Coakley, president of Coakley Strategic Solutions, LLC. "You can reduce delivery cost and provide great customer service, especially in a small community, by utilizing employees in one location to service customers in another location. It's great technology." These machines can help banks maintain strong service relationships even in locations where a full-scale branch is inefficient or prohibitively expensive to operate. 

Core Processors
Banks should consider the delivery channels offered through their core vendor, according to Jim Pannos, president and principal of the Pannos Marketing Agency. "Many of our clients are getting involved with their core processors to get their most recent release because there are so many more capabilities within the newer core processing platforms," he explained. 

Email 
"Don't forget the power of email," said Arnold. "Email is still a great channel to use to deliver products and services. Think about how scalable they are and how they look on mobile." For example, with the growing number of emails viewed on mobile phones, the format needs to be designed to allow readers to scroll through content easily.

Content marketing
In all digital marketing, but email especially, good content is a critical component. "Consumers today really want content and not sales pitches," said Arnold. "It's what you're saying as opposed to how you're saying it." Banks can position themselves as expert advisors by offering useful information to their customers through blogs, their website and emailed newsletters. However, Arnold cautions against too much verbosity: "People are consuming more information than they ever have before, but in smaller bites. Information you send out needs to be digestible," he said. 

Online
Technology that allows customers to access answers when the bank's doors aren't open will become increasingly important, according to Pannos. "Your bank doesn't have to be open 24 hours, but people are focused on accessing at their leisure versus when the bank is open," he said. The convenience of online banking appeals to many customers who previously performed transactions in the branch. "Consumers are not increasing the number of transactions each month," Coakley said of the growth in online and mobile transactions. "They're just interacting with the bank in a way that's more convenient for them."

Mobile
"Mobile has the strongest trend line," said Coakley. "From the studies we've done, mobile banking's trend line is going up at a steep increase while online, in-branch and phone systems are declining." However, it is important that the bank dedicate enough resources to their mobile app to make it both functional and intuitive or many customers will not adopt it as a preferred channel. "Customers expect a bank's mobile app to be vibrant, easy-to-use, and fast," Pannos explained. 

P2P Payments
Person-to-person payment applications like Vimeo are becoming the preferred tool for younger consumers, which makes these types of delivery channels a potential market for banks that choose to target younger customers. "Usage of [these apps] isn't going to shrink," said Pannos. "Banks should be aware of that as they're looking at their technology and how they're going to serve the millennial generation and Gen Z. They're looking to those types of platforms as currency."

Remote Deposit Capture
This service allows customers to deposit checks via their mobile phones by simply snapping a picture of it, and while it's becoming very popular, banks should be cautious. "It's a great service, but it can be costly, especially for smaller banks," said Pannos. Due to the diminishing number of checks being written across the industry, he advises banks to assess the overall market demand and competition for the product, as well as examine their own customer base demographics to ensure the product will assist in the bank's overall customer satisfaction and retention. 

Before Diving In…

So which channel(s) should your bank invest in? There are four main areas to consider when investigating a channel strategy upgrade: your customer base, cost, marketing and training. "It's important for banks to understand their market and their customer base," said Baker, pointing out that customer demands for a bank in metropolitan Milwaukee will be very different from those at a bank in rural northern Wisconsin. "Just because the bank down the street offers a certain product doesn't mean your bank needs to offer that same product. Ask your customers what they want before diving in." Coakley recommends defining not only what the bank's current customers want for delivery channels, but also the preferences of the bank's targeted future customers. "It's about what your current customers want and what your future customers want, and those can be two vastly different answers," he said.

While upgrading or purchasing new delivery channels can be costly, banks need to consider their options from all angles. For example, purchasing new video tellers may reduce branch overhead expenses enough to offset the initial cost. "Investing in new technology and solutions can overall reduce the cost of operations, so this is important to look at too," said Baker. Intentionally migrating your customers to digital channels can also lead to staffing changes. "Long-term reduction in FTEs pays for the new technology," Coakley explained.

Additionally, the bank must plan to market any new channels in order to optimize usage rates. "You may have great products and technology, but if you don't communicate that to your customers and your community, they won't adopt it," said Coakley. A review of the bank's current marketing channel strategies is also essential. "The very first thing every bank needs to do is conduct a marketing audit," said Arnold. "You need to look at each of your channels and how successful they are, then come back with strategic and tactical recommendations for changes." Finally, as with any major operational or product changes, the bank must offer training to its staff. "Banks need to invest in their staff, training them on ways to provide quality customer experiences at all touchpoints," Baker advised. 

Whether your bank has three delivery channels or 30, it's important that your customer experience is consistent across them. "Rather than thinking about just one channel, think about the experience," Arnold advised. So, when a customer visits a branch they experience the same level of service and style of messaging as when they visit your mobile app or website. "That's the challenge that banks face today," said Pannos. "You have to be old-fashioned in some aspects and cutting-edge in others." Because consumer preferences are so capricious, it's essential for banks to constantly reevaluate their channel strategy and adapt to what they learn. "Customers will continue to crave whatever technology is available which offers them convenience and a personal experience," said Baker. "As the technology evolves, banks too need to evolve."

By, Amber Seitz

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Legal Q&A: POD Beneficiaries for Deposit Accounts

Q: Can a Deposit Account with a Payable on Death Beneficiary have a Contingent Beneficiary?

A: No. Wisconsin Section 705 covers non-probate transfers at death. WBA does not read section 705 to permit contingent beneficiaries.

The WBA payable on death beneficiary designation form was created in accordance with the below interpretation of Wisconsin Section 705 and thus does not permit contingent beneficiaries. It has been WBA’s longstanding opinion that the POD statute does not permit identification of contingent beneficiaries to accounts governed by Subchapter 1 of the Chapter 705. Accounts covered by this statute include most standard checking, savings and certificate of deposit accounts established by a standard deposit account agreement.

The POD statute specifies who is entitled to payment on a POD account on the death of the last surviving accountholder. Under 705.06(1)(c), the funds are paid to the beneficiaries who survive the death of the last surviving accountholder. If none of the beneficiaries survive, the funds are paid to the estate of the last surviving accountholder. This is the way the WBA form is drafted.

The statute provides a second option under 705.04(2)(d), under which funds otherwise payable to a beneficiary who predeceases the death of the last surviving accountholder, would pass to the beneficiary’s issue who would take under 854.06(3).

When the option to pay the beneficiary’s issue was added to the POD statute, it was WBA’s understanding that the decision was made not to draft for this option. We believe that not all persons would want the issue (without identification of specific children) to receive payment. Further, the bank would not have any easy way to identify all of the issue who would be entitled to the payment. The identity of a person’s issue can change throughout the term of the account.

However, the statute does not permit any other payment of fund in a POD account. The statue does not authorize payment to named contingent beneficiaries.

The WBA POD beneficiary form was drafted to follow the above. Thus, if a bank wishes to contract in a way to appoint contingent beneficiaries for a customer’s deposit account we recommend working with the bank’s own counsel to either modify WBA’s form or create a separate designation. If your bank does not use WBA forms we recommend consulting with your forms drafters to determine what their interpretation of Section 705 is with respect to contingent beneficiaries.

Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution’s attorney for special legal advice or assistance.

By, Scott Birrenkott

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608-441-1200

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Madison, WI 53718

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